The Existential Threat to Utilities, and Why Transactive Energy is the Answer

Distributed generation (DG) has been called an existential threat to electric utilities. But it doesn’t have to be a doomsday scenario, and there’s interesting work going on in the field of Transactive Energy that envisions a much more pragmatic future of the Smart Grid.

Consider this. Society functions best when individuals or systems act in coordinated ways to cooperatively share their systems and resources. Water infrastructure is a prime example. We don’t all dig our own wells and septic systems, we share infrastructure that provides a better means of distribution and management of fresh and waste water. People who live in rural areas do have their own personal infrastructure, but when it comes to aggregations of people in villages, towns, and cities, shared infrastructure is the only sensible solution. Energy is another example of the benefits of shared infrastructure. But while it is highly unlikely that the business models for water infrastructure will substantially change, the future portends significant transformations for electric utilities.

The utility business model has been organized on the principles of very centrally controlled generation and variable demand or consumption of electricity. Generation was predictable, consumption less so. The “just in time” nature of electricity – delivering just what is needed, not more or less – is what utilities control to keep the lights on without frying them.

DG, whether at individual levels, organized into microgrids, or aggregated into virtual power plants (VPPs) will disrupt this business model. Generation gets less predictable. Consumption gets more predictable. These aren’t bad Smart Grid trends, as long as we keep in mind that with very few exceptions, “no man is an island” in the North American distribution grid. There aren’t too many DG assets or microgrids that function solely as standalone islands and don’t need integration to the utility grid for supplementary or backup purposes.

Utilities recognize that their customers want more energy independence and sources of energy that are sustainable. Renewables are a good choice to eliminate CO2 emissions, and especially when it comes to solar, can cost-effectively scale from small to large privately-owned systems. One challenge is that even when fully or partially self-sufficient from the utility grid, there is an expectation from DG customers that the utility grid will be there to supply power if their independent systems fail. But customers with DG may actually require more services or equipment investment from utilities to support these interconnections. That triggers the second challenge of allocating costs and fees in fair and equitable methods.

The GridWise ® Architecture Council (GWAC) has been working on a Transactive Energy framework document that addresses the operational and business aspects of these utility transitions. Transactive energy enables the integration of renewables in the forms of DER, microgrids, and VPPs on a vast scale in the larger grid with an emphasis on maintaining the safety and reliability of the grid and proposing business models that maintain fair allocation of costs and fees.

Ben Franklin had the right idea. He said, “We must, indeed, all hang together or, most assuredly, we shall all hang separately,” to a group of rebellious colonists signing the Declaration of Independence. This idea is implicitly at the core of Transactive Energy. A utility with significant DG assets interconnected to its distribution grid must cooperatively accommodate those assets and coordinate them to keep the grid balanced. Conversely, all DG that has an interconnection to the larger grid has to function cooperatively and in a coordinated fashion with that grid. These principles must apply to re-architecting the utility business model and grid of the future. That’s one of the primary goals of the GWAC group as they work on the Transactive Energy Framework. This framework can help utilities ensure that DG is not an existential threat and that we get a grid that lasts the next 100 years.